UPDATE 2-VW shields car investment from cuts as targets global crown

Fri Nov 22, 2013 12:20pm EST

* To spend 84.2 bln euros in autos division from 2014-8

* Lower investment on non-vehicle projects vs last year

* Investments on new, upgraded models unaffected

By Andreas Cremer

LONDON, Nov 22 (Reuters) - Volkswagen will keep up spending on new and upgraded cars in its drive to become the world's biggest automaker by 2018, while making savings in other areas to cope with rising costs and a tough economic backdrop.

The German group said on Friday it would invest 84.2 billion euros ($113.4 billion) in its automotive division over the next five years. That equates to 16.8 billion a year, little changed from the 16.7 billion announced last year for 2013-2015.

While spending to meet the group's emissions targets is up on last year's forecast, investments in property, plant and equipment are around 500 million euros a year lower, Europe's biggest carmaker said, pointing to the postponement of some unspecified construction projects and better use of capacity.

Investment in product and technologies will be unaffected, Volkswagen (VW) added, while its two joint ventures in China - the world's biggest car market and the engine of the group's recent growth - will continue to invest heavily.

"VW is reinforcing cost discipline, with greater emphasis on core product spending," said M.M. Warburg analyst Marc-Rene Tonn.

Compared with European rivals Fiat and PSA Peugeot Citroen, VW has weathered the European car market's six-year slump well, thanks mainly to luxury marques Porsche and Audi, which account for only 15 percent of sales but contributed two thirds of profits so far this year.

But some analysts have expressed concern that VW's market share gains in Europe have been bought by heavy discounting, and scepticism is creeping in whether a new manufacturing platform aimed at cutting costs across the group's brands will deliver the promised benefits.

With the costs of that platform, as well the discounts and a stronger euro eroding profits, analysts had expected some cost cutting on projects not related to model development.

"In times like these, our disciplined cost and investment management will remain a cornerstone of our activities," VW Chief Executive Martin Winterkorn said on Friday.

CHALLENGES

VW, with 12 brands and 105 factories, has a fleet of some 300 models that ranges from budget Skodas and SEATs, through the VW Golf, Europe's best-selling car, to buses and trucks carrying the MAN and Scania badges.

However, even with net cash of 16.7 billion euros at the end of September and a goal of matching last year's record operating profit, the group faces a battle to overtake Toyota and General Motors and become world number one by 2018.

VW finance chief Hans Dieter Poetsch said last month he did not expect a quick rebound in Europe's car market, which accounted for almost 40 percent of 10-month group vehicle sales, although auto sales in the region swung back to growth in September and October.

The Wolfsburg-based company, which is rolling out about 60 new and redesigned models this year, was also dealt a blow last week by news it was recalling over 2.6 million cars worldwide to fix a variety of problems.

Almost 60 percent of VW's spending on property, plants and equipment in the auto division will focus on Germany, it said.

Its Chinese ventures, which are not consolidated, will spend an additional 18.2 billion euros from 2014 to 2018, it added.

VW shares closed around 0.5 percent lower at 195 euros, within a broadly flat European blue-chip index.

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